a very testable thing so one thing people get hung up on is there is two stock positions we have you know most people get hung up because in most businesses when you sell things that you don't own it is called fraud but in our business selling things you don't own is called a short stock position and what you're selling is borrowed securities and since that is the case it's very important that we are clear with what type of position we're trying to open are we trying to open a long stock position or that matter a long option position or are we trying to open a short stock or for that matter short option position and so you know on an order ticket we're going to have four boxes we check and if we're trying to establish a position we're going to check opening and what we're trying to do is establish a long stock position we're going to do an opening purchase and that alone is a test question they will say on the exam which of the following types of orders would be used to establish or add to a stock position I think it's kind of like if you come visit me in Vegas and you go into the casino and you want to establish your position within the casino you're going to do what's called an opening purchase right you say you want to buy some chips right you're from the casino's perspective that's gonna be an opening sale and so on the test they can say which of the following would be used to establish or add to a short position and then you would say an opening sale so you know you're gonna go into the position and at some point You're Going to exit or get out of the position sometimes we say we're going to offset that position so if I'm your broker and you want to get rid of your stock you're going to do a closing sale and again on the test they'd say which of the following would be used to eliminate or reduce a long position in my Casino analogy right when you're ready to go home you go to the cage and you close out by selling your chips and you're hoping that you have more money than when you started right yeah again very similar in making Investments I turn my money into the investment that's called my cost basis and at some point I'm going to turn the investment back into money and I'm hoping that I have more money more purchasing power but again on the test they'll say which of the following orders would be used to eliminate or reduce in my Casino analogy or even the stock if I have a thousand shares I don't have to sell a thousand I could sell 500 for example and let the other 500 ride so when the minute we hear as a test taker Eliminator reduce we know it's a closing transaction and then we just have to decide whether it's a closing sale or a closing purchase depending on what the case may be because as we said we have two stock positions so this is a very important answer set I can't imagine any draw of the exam in which you are not going to get this answer set and so let's just go through this answer set if on the test they say which of the following is used to establish let me get a color that shows up a little better used to establish or add to a long position we'd say an opening purchase you know I thought about some point writing an entire practice exam just has answer sets with no questions I do think that's one of the challenges on your exam by the way because you know all of the distractors distractors are the technical name for wrong answers and as you can see in this answer set every wrong answer could have been right to some different question depending on what you're being asked but the key phraseology for the opening is when we see used to establish or add to now we know that's an opening transaction so now what we have to decide are we trying to establish a long position or a short position and then we said you want to offset yeah so what you're going to do now is you want to get out of this transaction I say Hey listen I'd like to close the sale to a closing sale and the key phraseology we're looking for is a test taker is used to eliminate or reduce now what we mean by root reduce is that again you don't have to sell all of your shares right so use eliminary reduce now we know it's a closing transaction either a closing sale or closing purchase depending on what the original transaction was by the way this is the same phraseology we've been using for options and sometimes all you say or offset they might use that phraseology offset a long position so these are how we establish these positions at a broker term and now we close out these positions as we said you're hoping that that closing sale would be for more money right and then we set a closing purchase would be used to eliminate or reduce or offset a short position so that's how we actually initiate these positions in terms of these types of orders you know the today tonight we're talking about types of orders and these are the types of orders you have at Available to You arrows in your quiver right arrows in your Quivers so to speak so uh if the customer wants to buy it their price or better they're going to give us a limit order the only order that has no contingency no qualifier is a market order I want immediate execution at the best available price you know I get kind of aggravated and demented when I'm elsewhere and people don't understand the market order you know I they start telling me all the ways I can get a better deal I said I'm really not interested I just want it man I want it and I want it now if I'm more interested in execution then I am price I'm going to be using a market order you know for example uh nopman light it like the way I started out one of their practice exams they had given me permission to put one of their practice exams up on the channel and uh unbeknownst to them as soon as they gave me the permission I went online and I bought their thing and I did the thing and because I just knew that bureaucracy might be such that who knows it might be two more months before they send me some content and so I started by saying I used a market order at nothing I just went online I bought this series 57 course it was 350 bucks I might find out later there's some coupons somewhere or you know my brother loves hunting coupons for things you know I I'm not interested in doing that now the customer is either going to be interested in execution or price and depending what's more important will depend on the type of order but the big takeaway for us as test takers is we only have one order that has no contingency no qualifier you know um long ago you know I was going to an NBA championship game and the guy who I was talking to said well you can't go it sold out I said no it's not sold out it at some price there is a ticket and I'm not interested in the price now whatever it cost me to get my butt in that Stadium I'm going to pay it now and then my buddy said well I'll go for two thousand dollars or less and his name is Joe he said well Joe you may or may not be at the Bulls game with me this evening because you're saying that that price is more important to you than the consideration now again this is kind of like a Muni bonds you know people think there's a lot of mini bonds there's not there's just GEOS and revenues and people think there's a lot of zillion types of orders there's not there's only two the only two types of orders there are are Market orders and limit orders now granted there is a gazillion contingencies or qualifiers you can add to an order we're going to talk about all those contingencies or qualifiers that you can add to an order but at the end of the day it's either a market order or it's a limit order and as we start that Journey the only order that has no contingency no qualifier is the market order so buy a thousand shares of Apple at the market I want immediate execution best available price now if you give me a limit order you're saying you want to do business but you want to do business at your price or better and nobody has to do business with you your price or better you know it used to drive me nuts with customers contact what did you know did my order go off I said well nobody has to do business with you at your price or better so as a buyer there's an improv applied or better or less now be careful ladies uh ladies and gentlemen we don't have to as a customer tell you it's a little order if I specify my price it's your job to know that's a limit order so if I say da go buy me a thousand shares of Apple at 160. that is a limit order it's not my job to know that's a limit order that's your job is the broker now again you call me back Diego calls me and says Hey Dean uh your limit went off you got the Apple at 159. I go woohoo that's even better right so as a buyer my price or less now as a seller my price or more now I used to use when my Brokers would say Dean are you buying office the office lunch today I said yes I'm buying the office lunch on a 500 limit order if we cannot feed this office for 500 or less I'm not good for it now here the price is more important than the execution now if I didn't get my Brokers a limit my God they'd be willing Fizz and under glass and for lunch right so customer wants their price are better during that day's trading now I had a customer one time he said Dean let's put in a 5 000 at 18. I want to buy a thousand eighteen my job to know that's a limit order you know and all orders are considered day orders unless we're told differently and so you know I called him the next day I said hey your order didn't go off you didn't get your price or better would you like to re-enter it because yeah let's go for it Dean let's re-enter it I called him Wednesday but the fourth time I called him he said Dean why do you keep calling me I said well because you know it's a day order and I want to see it perhaps you want to re-enter it I said tell you what if you make it GT GTC good till cancel I'll stop bothering you he says okay let's buy a thousand eighteen good till cancel now nowadays with technology we remind customers that they have these limit orders on the books but you know in the old days we would cancel these orders in April and October when the Specialists would clean up the order book you know because the specialist is the one who's holding uh the limit orders so buy limits their price or less and very testimony where we place orders in relationship to the current market price you know for example right now I'll just put up a little thing here today Apple's trading at 160. so current market price of Apple is 160. and let's put a little thing here you know you'd be very foolish you'd be very foolish to tell me with Apple at 160 that you want to buy Apple at 162 or less I'd say well listen you must be new you know and I'd buy it at 160 and I fill you at 162. and it beats working for a living it's very testable to know where we place orders in relationship to the current market price where we place orders in relationship to the current market price and limit orders by limits are below the current market price and that is very testable no now I have a nice beautiful thing you've probably seen and we'll go over together I know you're excited and we have a nice memory aid device to remind us about where we place orders in relationship to the current market price you know that's going to be slobs over Bliss it's a little ahead of where we're at right now but buy limits go below the market price and that's very desolate where we place orders in relationship to the current market price now as I said if you're foolish enough to not follow that convention you know people are gonna say ah you must be new right now as a cell limit you want your price or more you know so if I tell my broker to sell Apple at 160 and he says Dean uh your limit went off we got 161. I go woohoo so there's always an applied or better so is it a buyer your price or less as a seller your price or more and again very testable know where we place orders in relationship to the current market price you'd be very foolish with Apple at 160 to tell me that you want to sell your Apple for 158 or better I'd say cool you just sold it at 158 to walk knee and then I'll sell it 160 and make two points it would be who view test question to place your sell limit above the current market price it's very testable about where we place orders in relationship to the current market price you know and again we're going to have a nice mnemonic to help us out in this regard that you have probably referenced if not if you're going to be doing a data dump sheet for example maybe you want to add that to it so that's going to be so limits uh and again the whole point here is the customer is saying that price is more important than execution price is more important than execution so with a market order I'm more interested in execution I want it I want it now with a limit order uh price is more important to me than execution so they're the different orders for different uh Different Strokes for different folks if you will so here's some examples of Market orders and you can see I made the slide uh when Apple is trading at about uh well we'll use this to talk about this so Apple's trading app one thing you want to be able to do based on where we place orders in relationship to the current market price is to kind of be able to Intuit where Apple's at I'm using Apple but you know XYZ on the star test or BFD so a market order is pretty straightforward I just tell my broker buy me a thousand shares of Apple to Market and again here I want immediate execution best available price so now we're looking at a sell limit where customers says sell a thousand shares of Apple 130. so we should be able we should be able to determine that Apple must be somewhere below 130. apple is somewhere below 130. how does Dean know that apple is somewhere below 130 because I know that cell limits have to be placed above the current market price so I know that in this situation if it's a test scenario that apple is somewhere below 130. again this is another way of testing you about do you know where orders are placed in relationship to the current market price now as we see here as we see here we have a buy thousand shares of Apple at 125. and I know that that buy limit is below that So based on these two prices I know that Apple must be trading between 130 and 125. because I know the sell limit is above the current market price and the buy limit is below so this is another way of testing you on where the market is in relationship to the order or orders that you're looking at on the exam right so we should know that the settlement is above that price and the buy limit is below that price foreign if I do better for you than that right uh as a buyer you want your price or less is there another arrow in our quiver for a customer who wants to buy the stock at their price or less so you know we said right now apple is trading at 160. Apple's trading at 160. and one thing you could do is you could build in a buy limit of Apple at 159. and you know let's just talk about that nobody has to do business with you that uh buy limit may never get executed yeah apple goes up and you don't have the stock or it might get executed at 159 or less and you do have the Apple you know you bought the Apple at less than the current market price car Mark Price was 160 you put it in a buy limit at 159 and you ended up buying the stock is there another way to do that what is an alternative to a buy limit an alternative to a buy limit order I say Cynthia let me get this right you would like to buy Apple at 159 and today Apple's at 160. she says yes I said well tell you what Cynthia why not get paid why not get paid to do something you say you're already prepared to do you're telling me that you're prepared to buy Apple at 159 or less and Cynthia somebody will pay you several hundred dollars in advance to agree to buy Apple at 160. several hundred dollars hmm somebody will pay Cynthia several hundred dollars you're on the right taxis you're not buy a plate what Cynthia would do is seller put selling a put is an alternative to a limit order so I say Cynthia why don't we sell an apple 160 put for four if you sell a 160 put on Apple for four Cynthia and you get executed you'd be buying the stock at 160. if you get exercise you got four so you'd be paying 156. you'd be buying the stock at less than the current market price she goes woo I go now hold on just a sec 160 or higher the put expires you get to keep the 400. in the buy limit you don't get nothing right that buy limit doesn't go off Cynthia doesn't get paid she goes well Dean yeah but what if I buy the Apple at 160 and you know the apples at 158 I go wonderful right because your break even is 156. and she goes It goes to zero I will I said well Cynthia that would have been no different than if you put in a buy limit at 159 it went to zero so you know if I'm a registered option principal and I say Caesar why does uh Cynthia want to be approved to sell puts you know wonder she's a Speculator and she's bullish and she just wants to keep the premium but another good answer she said Dean uh Cynthia wants to sell puts as alternatives to limit orders there's our stocks that Cynthia is willing to buy and she wants to get paid to do something she's already prepared to do you know uh any option strategy that Mr Buffett is a fan of is probably not a bad option strategy you know Mr Buffett likes selling puts on stocks he's willing to buy and then if he gets exercise he says oh thank you very much I wanted the stock anyways I wanted the stock anyways now the disadvantage of that right is again she's going to have to be approved for options okay stop orders are used to stop a loss that's the number one use and that's why we call them stop loss orders we call them stop loss orders you know part of successful investing part of successful investing is letting your flowers bloom but more important pulling your weeds and so you know I say uh as Cynthia we bought the Apple stock at 160. we bought the Apple stock at 160. how much are you uh willing to lose approximately at what point are we going to agree that this is a bad idea she goes I don't know Dean I'd be willing to lose approximately you know four points I said what I would suggest we do is place a sell stop a sell stop to stop the loss and I was uh talking to this guy when I was a baby broker years ago and you know I said listen I'd like to open a new account with you I'd like to buy a thousand shares at 50. if I'm right about the stock or the next 12 to 18 months I think it could be a hundred dollar stock and we'd make fifty thousand dollars we'd double your money but if I'm wrong about the stock I could just easily be wrong and the stock could go to 20. so what I'd like to do with your permission is open the new account buy a thousand shares at 50 and place a sell stop at 47. that way you know worst cases we're gonna lose approximately three thousand dollars approximately three thousand dollars so you know what I'm trying to do here is stop a loss in a long stock position anyways he was cracking up he said honey there's a broker on the phone and says it's going to cost approximately uh three thousand dollars to get to know I say approximately because if the order gets triggered where it's where we're heading you know it'll be uh two separate events and then whatever that execution is so cell stops can be used to stop a loss in a long stock position and as I said that's one of the main things that people use them for you know a lot of people have those uh sell stops to stop that loss in a long stock position now remember we also have we also have a short stock positions and so if you're short a stock I might say listen uh what point are we going to call it a day and put in a buy stop to stop a loss stop the bleeding on a short uh position so a buy stop can be used this is number one use there's three uses but this is number one to stop a loss in a short position so you know it depends on what side of the market you're on right because remember in our business we have long positions and we have uh short positions and the uses of the stops are very testable uh but again we've been talking on the previous slide about uh how you can use options as order equivalents for example so what's another way you can stop a loss in a stock position besides a sell stop what is another way that you can stop a loss in a stock position besides using if I stopped well we're gonna no not a buy stop buy a put right another way to protect a stock position is by buying a put now the disadvantage of buying the put is you got to pay a premium you got to be approved for options and you can't move it around you know the advantage of the sell stop is you don't have to be approved for options you don't have to place anything to uh place it and you know you can move it around all right chance to redeem yourself what's another way to stop a loss in a short stock position because again don't be a dumb bear being a dumb bear as you short the stock and you don't take any risk mitigation strategies like placing a stop order anybody know what we might want to consider celical buy a call you want to have choices yes that's okay that's what we're doing it though no no big deal but choices are protection you know you want to when you're when we're talking protection you always want to have a choice right so when we talk protection you're talking about paying a premium bang a premium right like an insurance policy okay so let's say we're right let's say we're right and the stock if we're long goes up or if we're short the stock goes down and we have a profit and so now what we might want to do is uh move our stop down to protect that profit now we're going to go through some examples here in just a little bit but that's another use of a stop is to protect a profit so in my example with my customer we got lucky we bought the stock at 50. the stock went to 100 and I said Hey listen I'd like to move that cell stop up to 97 to protect our profit to protect our profit and the third use is to establish a stock position to establish a stock position now uh Erica says he just finished a final and so I know that Erica is getting to become a better and better test taker each day she's getting to be a better test taker and anytime there's three of a thing like you see on this slide what kind of format of question might you encounter on your test except they love that they just love to give you those accept questions and the reason they like them is because they get to test you on three things right and you only get one point so I think a lot of people think oh it's 125 questions not really it is but I mean you know when you count the answer sets as being potential correct answers uh it becomes a little uh a bigger deal all right so you know we have uh people who practice practice uh technical analysis we have people who practice technical analysis and in technical analysis we're going to have a support line and we're going to have a resistance line now we're talking about Apple and if I'm a technical practitioner you know I don't believe in buying Apple when it's stuck in the station when it's not going anywhere now right now I told you apples at uh 160 and so you know here's a chart on Apple and you know in here is the you know the prices and we connect all the dots basically but here is our chart on Apple you know it's in this trading range and nobody wants to buy the stock when it's in the trading range you know what I want to do is get on board the train when it leaves the station so you know I'm watching this thing and a different color here and when I want to buy the apples when it breaks through the resistance line so again very testable what kind of order might a technical analyst place to establish a long stock position if it breaks through the resistance line what are we going to place there we're gonna stop right on and when it plays a buy stock maybe a 168 yeah we don't have time to test actually you know pick the thing it's going to be provided for us so we play a buy stop at 168. boom uh listen there's a lot of folks that have uh buy stops above the current market price of Apple you know some of those people have buy stops because they're getting on board they're going long some of them are trying to protect the profit some are trying to stop a loss and so uh very testable to know that buy stops can accelerate a bullish Trend they'll say on the test what type of order can accelerate a bullish Trend and you would say accelerate a bull string you would say a buy stop because it adds fuel to the fire right as the stock goes up you know these orders get triggered causing more buyers accelerating uh that uh upward move now I had a my cousin and he's making his wife nervous he was going to buy this stock and you know we were talking about it and now I had punched up a chart while I was talking to them I said you know John you're making your wife nervous I mean he says that you put your retirement plan online and you're playing video arcade games with the money and so Jesus asked me to give you a call and I said what's up and he said well Dean the stock used to be a forty dollar stock and now it's a ten dollar stock and I said well John there's probably a reason for that and he said what do you think about buying a thousand chairs and my retirement plan at ten and if it goes back to 40 I'm going to make thirty thousand dollars I said that's a big if John I said you know if I were you I would do that in your personal account because if you're wrong at least you can deduct up to three thousand dollars against your personal you know income tax your ordinary income your earned income you know the two major impediments John to investment success or Taxation and inflation and in your retirement account you've already have beat taxation so we can beat inflation we're getting ahead they say well dude it's none of your damn business none of your damn business but I don't have the money in my retirement plan I go that's probably not a good excuse me in my personal account that's probably not a good reason to be day trading your your pers uh retirement plan anyways I said John while we've been talking I've pulled up a chart and it looks like this stock is kind of stuck in the station it's not going anywhere so I mean why would you want to tie up ten thousand dollars on a train stuck in the station I mean you only want to get on the board the train when it goes leaves the station going your way so you know it's at 10 and it's kind of stuck there why don't you put in a buy stop at 12 tell your Schwab broker that if it trades out or through 12 you want to buy the stock in the meantime you still got your ten thousand dollars earning interest and uh you know then if it goes leave the station you get on board let's say it gets triggered at 12 we're going to be doing examples of this in a moment I know you're excited and I maybe get bad filled 1250 goes to 40. you know oh well I mean so they make a little less than 30 grand but you still got your money and said can I do that I said you certainly can now a buy stop has to be placed above the current market price and please note the stock is 10. I got a nice little beautiful memory aid device we're going to be talking about this at length in just a little bit but for right now let's put this uh right here the buy stop is going above the market anyways he did that after he did it uh the stock went nine eight six five four three two bankrupt uh he never bought the stock it left the station going the wrong way you don't want to get on board an ab train he's a demon that was so cool you ever think about being a broker I said well geez job I don't know what you think I did for 20 years but you know all right so now we have buy stops that we're going to place above the resistance but if we're technical practitioners we don't really care where they're going long or whether we're going short what we care about is getting on board when the train leaves the station going our way so what kind of order am I a technical analyst place to establish a short position we're looking at using a stop order right on and where would we place that sell stop very testable cell stops have to be placed below the current market price right so we're gonna put our sell stop maybe at 152. boom and now I'm saying I want to short the Apple but only if it trades at or through 152. please note lots of people have sell stops on Apple hello the support line so test question what type of order might accelerate a bearish trend a sales stop right because as these cell stops get triggered it adds more fuel to the fire all right so very testable so those are all the various uses of uh stop orders all the various uses we have the stop orders I would definitely be prepared for the accept format as it relates to this and uh the cell stop please note has to be placed below the current market price we'll be talking about that at length I know you're excited all right so stop orders are suspended or contingent or Market orders they can become a market order or a limit order it's a you know it may or may never become a live order I'm telling my broker if this then that if it trades enter through 12 pull the trigger and buy the stock if this then that if it trades at or through 168 pull the trigger make it a live market order so we can turn it into a market order or limit order I'm going to show you both now as a testing you're going to be real careful on the test is this a stop order it's going to get triggered into a market order one contingency one qualifier if this then that or is it a stop order if we pull the trigger becomes a limit order because then we've got to be a little more careful because now the customer is saying if this then I want my price or better now customers need to understand that the more contingencies or qualifiers they add to the order the less likely that that order is going to get executed right so stop orders are suspended or contingent Market or limiters they may never become live that is a potential answer on your exam you know where we're going with this is we're going to be looking at a sequence of Trades and determining whether or not the order ever became live and then if it did is it going to get executed or not that's where we're heading stop orders don't become live market or limit orders until there's a trade at or through the trigger price two separate events I can't tell you how many customers get confused about this my customers watching CNBC watching the tape go by and he calls me goes I saw my trade you didn't see your trade you said well Dean my buy stop was at 12 and I saw a trade at 12. I go that's not your trade that is the trade that turns your suspended order your contingent order into a live order so very important as a test taker that you understand this is two separate events two separate events all right so uh sell stop orders we're gonna you will be looking at both cell stops and buy stops we're going to be looking at sell stops that get triggered into Market orders and we're going to be looking at uh sell stops that get triggered into limit orders we're going to then look at buy stops that get triggered into Market orders or limit orders we're going to be looking at both so cell stops very testable or placed below the market that's very testable we have a nice memory of a device called slobs over Bliss I'll go over that at length with you towards the end of our time together but again here we go three of a thing sales stops can be used for all the following except so cell stops are used to stop a loss in a long stock position protect a profit and a long stock position or establish a short stock position if the stock trades at or through the support line those are three uses so here's an example this is very much a test scenario so uh sell stop order customer buys a thousand shares of Apple at 128 and places a sell stop at 124. the following trades then occur the following trades then occur so now what we're going to do is we're going to go through these trades and see if anything happened here please note we did follow the convention what I mean by following the convention is we have our cell stop and it's below the current market price so we did indeed follow the convention so anything happened at 127 yes or no Chad is open anything happened at 127. no it happened at 126. anything happened at 125 yeah anything happened at 124.05 no 123.95 ding ding ding ding ding ding there is no way on a number line to go from 124.05 to 123.95 without trading through 124. add or through it now becomes a live order two separate events two separate events P.S it's now a live market order it is a live market order so it doesn't matter what the next trade is whatever the next trade is it's my customer's order it doesn't matter if that's 123 it doesn't matter if that's 125 because this is a sell stop at 120 where it's not a sell stop limit I'm going to show you that this is not a sell stop load this is just a straight sell stop it turns into a market order two separate events now these on the test would be labeled and you would have to tell me that on trade five is when this order became live now remember it may not become why but that's where he comes alive and then you would have to tell me whatever that number is where we receive execution so any question on that sequence before we look at another one all right let's look at another one uh here's another example of a sell stop we're looking at cell stops a customer buys a thousand shares of Apple at 128. apple is now trading at 187. woohoo we might want to consider protecting our profit that sounds like a reasonable thing to be able to do we place a sell stop at 185 please note we follow the convention and so what I mean by the convention is we placed it in the appropriate place in relationship to the current market price anything happened in 186. anything happened at 187 no 180 505. 18501 no no nothing happens 105.01 no 185 this time it traded at Adder through two summer events this is now a live market order it's been triggered or elected pull the trigger I told my broker if this then that I told my broker pull the trigger the order has been elected those are contingent events they may or may not happen but the order has been triggered and remember here when we're pulling the trigger or here when it's elected it becomes a market order and so you would tell me that whatever that next trade is that's my customer's trade uh what else could we've used besides a sell stop to protect this profit what other arrow in our quiver might we have used to protect this profit protect protect whenever you hear the word protect it's not cell I'm being by the way I'm being facetious right there you go if you want protection You Gotta Buy right so another thing you might want to consider is buying a put you might want to consider buying a put you know there's you know you can accomplish different things with orders versus you know options so we could buy buy like an apple 185 put Maybe that's right I would say sell for incomes easily I would say that but you know as long as you can pick it out of the lineup so to speak okay so let's uh try another one let's try another one there we did that one uh sell stop order here's another one I think was I don't know if it was you Cynthia but uh I think that we did one of these evening classes and people said they want to do some more questions like this I think that was you so this is uh I've added some more questions to these uh evening uh things anyway so here's here's a practice question a technical analyst is looking at a chart of the trading history of Apple the chart shows Apple to have resistance at 1 30. and support at 120. uh which order might a technical as Place below the support level no and again the support level is 120 2018 yes it would be C would you agree the answer is C now you wouldn't want to do the limit you can do that even if you wanted to but you remember the limit order we're going to look at that if you pull the trigger now it's a limit order you may or may not get on board the train right because now you're saying you want your price or better and you know you know nobody has an obligation to do that with you and so the answer to this is a c I think that's a good practice question obviously because I'm the guy who wrote it so you know a technical analyst did we just do that or is it differently oh look at this man I beefed these things up didn't I a technical analysis looking at a chart of the trading history of Apple the chart shows Apple to have resistance at 1 30 and support at 120. uh which order might accelerate a bearish trend so the first thing to think about is well bearish Trends are caused by having more sellers than buyers and bullish Trends are caused by more buyers than Sellers and so yes once again it's the sell stop at 118. right the cell stops C indeed it is C let me uh just put that there because you know people watching this on replay all right so pretty good now we have buy stop orders and buy stock orders are placed above the current market price that's very testable we have a nice memory aid device for that and we're going to use buy stops to stop a loss in a short stock position protect a profit in a short stock position or establish a long stock position if it trades through the resistance line again anytime there's three of a thing the accept format right so we said we use these to stop losses protect profits and establish stock positions but we have two versions of them right we have the version of a cell stop and then we have buy stops so let's look at this scenario now so same thing a customer same thing but on the other side of the market right a customer sells short a thousand shares of Apple 128 so he's afraid that it's going to go up and he places a buy stop at 132 so he's trying to stop the loss what else might he have used as a mitigation strategy if he's afraid about a loss in the short stock position what other risk mitigation strategy might he use excellent excellent Caesar this time he got it right I'm teasing Caesar but that comes part of the process is practice during or nursing and missing questions so it's counterintuitive and missing lots of questions is good you know Erica just told me he finished a final and she said man I missed a lot of questions I go that's great let's see if we can miss some more tomorrow because you know that's part of the process is missing lots of questions right so good job good job all right so uh whoops is that what we're doing where are we at my bad okay so let's do this one uh what we did that one I'm going the wrong direction sorry about that there we go okay so now same deal uh please note we follow the convention what I mean by following the convention is we placed our buy stop above the current market price and again this is test phraseology a customer sells short a thousand shares of Apple at 128 and places a buy stop at 132 the following trades then occur right so we're watching the trades go by we're watching the tape on CNBC does anything happen at 129 anything happen at 129 no anything up at 1 30. and you have a 131 no anything happened to 130 201 no yes no no it has to trade at or through 13201 oh excuse me my bad my bad you're correct buy stop at 132. uh that is uh not Bueno Dina the instructor has missed a question right so let's clean up that slide erase the evidence right so hear it in trade at what's that may I I'm sorry may I I can't understand what you're saying what tried it one more time the audio is not coming in very well I said may I may I may you what there you go of course of course it's a fair game right of course yeah I mean I deserve just in deserving than anybody else now again we want to be careful here because now it's a live order now I've given you the next trade so remember this would be labeled on the test right and now you have to tell me two things you have to tell me that on the test this became a live order on Trade four and here boom is execution because again we're turning these into Market orders we haven't turned them into limit orders and limit order is going to be a little trickier what I mean by that is if we turn this into a limit or we've got to be a little more careful about what this trade is because it may or may not be acceptable to my customer but if it's actually we're pulling the trigger if this than that and we're pulling the trigger it becomes a market order when poof we're out of here we're out of here right so excellent excellent catch catch the instructor I love it okay so let's try another one a customer sells short a thousand shares of Apple at 128. several weeks later Apple's trading at 95. so are we happy are we sad if we sold short Apple at 128 and now it's at 95 are we happy or are we sad happy we're set happy yeah we're happy right because we're you know we want to sell high and buy low so everything's going according to plan here and so what we might want to do is use a buy stop test question to protect our profit and then again the following trades then occur so please note we did indeed follow the convention we put our buy stop above the current market price and again chance for Dean to redeem to redeem himself now right let's see if I can avoid the aim so oh these would be labeled you know trade one two three four five and by the way this sequence may go out quite a ways right in terms of the sequence of Trades they're showing us so anything happened at uh 96. no 97 no 97.95 no uh let's see I don't think you're gonna get me this time at or through it becomes a live market order and now you tell me execution at 99. right so either at or through so I've shown you both versions here added through sometimes I get a little aggravated with test prep vendors because a lot of times they continually show you the same thing they either show you like always at or always through they don't show you different permutations of this thing in terms of being at or through so I'd like to show you a little bit of both and uh Cynthia said Dean what happened to we do some questions in these evenings together I said okay you got it a technical analyst is looking at a chart of the trading history of Apple the chart shows Apple to have resistance at 130 and support at 120. what order might a technical analyst place above the resistance line what type of order might they place above the resistance line yeah right on right on and remember there's a lot of people that do that a lot of folks that are placing buy stops to either stop losses or protect profits or establish stock positions whoop a technical anist I'm sorry I'm making there we go a Techno Glass is looking at a chart of the trading history of Apple the chart shows Apple to have resistance at 130 and support at 120. what order might accelerate a bullish Trend what order might accelerate a bullish trend yeah it's a again right it's a so this is the actually the same question just asking you to answer in a different way uh based on a different answer set and as I just said that's because a lot of people have these things above the market as they get triggered that adds more fuel to the fire more fuel to the fire so to speak all right now this is very foolish you can do this if you want to you know so now the customer is saying Dean when we pull the trigger I don't want it to become a market order I said oh man this is a not smart not Bueno you know he says why I see because now you're adding a second qualifier you know the more qualifiers or contingencies you add to the order the more or less likely it is that you're going to get execution so stop limits become live limit orders instead of Market orders so now we're going to be a little more careful again now when we pull the trigger if we if and when because we may not remember saying if this then that if there's no this there'll be no that it's going to become not a my live market order but a live limit order so now we've got to be a little careful now off the bat whether you want a sell stop it turns into a market order or a sell stop that turns into a limit order all cell stops have to be placed below the current market price so if it's a sell stop that comes a market order or sell stop that becomes a limit order it's placed below the market right so again test takers get it hung up all the time I thought so limits are above the market they are sell limits are above the market this is not a sell limit it's a sell stop limit and the cell stop means it goes below so a customer buys a thousand shares of Apple at 128 places as a sell stop limit at 124. now if I'm your broker I'm gonna say this is so foolish because now you're telling me that you only want to go home if you can get 124 or better are more and that means you may not be able to get out of the stock because there might not be a trade at 124 better so then we get this sequence of Trades again anything happened at 127 no we're looking for two things now we're looking for a trade at or through 124 and then a price that is acceptable which would be 124 or more anything happened to 126 no 125 no 124.05 no ding ding ding ding ding ding ding now it's become a live limit order and so this next trade may or may not be acceptable if this trade is uh 123 he will not accept it if the trade is 123.99 he won't accept it you know the stock is 120 the next trades 125 he'll accept it so that is the danger of this sell stop limit as I said you got to be real careful on this as a test taker because now that matters what that next price is in the sequence and where the sequence can carry through it can be a longer sequence than this perhaps uh any questions on this one again kind of foolish you're kind of foolish here because what you're saying is you want to pull the trigger and go home but only if you can get your price or better right so let's do another one a uh customer buys a thousand shares of Apple 120 uh eight per share you know yeah I'm being prejudicial I know but I used to have customers like this and they just drive me nuts because now he's getting even even more tricky right he's saying Dean I want to pull the trigger at 124 but I want my limit at a different price did I do that I go absolutely you can do that I think it's foolish but you know hey I record nobody's saying now now he's saying that if we pull the trigger then he wants to sell but he wants to do so at 123. so he's got a trigger price that is different than his limit price so again a little trickier still right the following trades that occur please know we did follow the convention so whether you want to sell stop that turns into a market order or a sell stock that turns into limit order it gets placed below the market falling trades and occur nothing happens here we're looking for trade at or through and then we're looking for something that's better than that this is a seller his price or more so nothing happens there nothing happens there nothing happens there ding ding ding ding ding ding now it's a live limit order at 123. so again if that next price is 123 or higher it is acceptable if that next rate is 122 121 120 he doesn't accept it all right so kind of foolish you're to add it at different prices so you can turn your stop order into a market order or you can turn it into a marketer so here's an example of a buy stop one so we looked at cell stops that turned into Market orders and then we turned looked at sell stops that turned into limit orders and now we're doing the same we looked at buy stops that turned into Market orders and now we're looking at buy stock to turn into limit orders doesn't matter whether you want to buy stop that turns into a market order or a buy stop that turns into limit order buy stops or above the market price and please know that we follow the convention here a customer sells short a thousand shares of Apple at 128. several weeks later the apples at 190 at 95 so we're looking good any places a buy stop limit so now he's saying Dean if it trades at or through 98 I want to uh buy it but only if I can do so for 98 or less there's always an implied or better and again I think this is foolish now because again we have to be careful we've got two qualifiers two contingency and our buy stops and sell stops to turn to Market orders trigger poof execution trigger poof execution in these limits it's uh trigger and then my price are better so that's a little different so nothing happens here nothing happens here we're looking for trade outer through 98 ding ding ding ding ding well no we remember it's above the market so ding ding ding ding ding would this trade be acceptable so here it became live because it traded at 98 is 99 an acceptable trade would that customer accept that trade no he's still in the short stock position because he wants 98 or less and so you know this thing goes to 100 or 101 or 102 he's not out of the position if the next trade was 98 he would accept it so again a little trickier on these ones a little trickier a Dean yeah a quick question for you so when would it be appropriate to put in a limit well remember on the test you don't need to tell me it's appropriate or not I'm just sharing my prejudicial behavior with you but on the test what you have to do is actually practical application uh you know I was talking to somebody today and I said I could never decide how much leadership to show so you know I was talking like you know I know some people who do what I do that don't go over questions that they think are not productive they're just tell them I'm not going to go over the question and I you know was telling the person I do go over the question even though I know it's not something that I I would like to do and you know you know and if they're spending their money I kind of feel bad taking their money on something I don't think they're going to counter on the exam but anyways I'm just saying that in leadership it's the same as a broker right they tell the customer whether or not now you have to test the question you have to follow your customers instructions so this is what the customer wants to do we got to follow up but you know at some point you know maybe as a broker when you're it's hard to do this when you're baby broker but if you're an established broker I don't have a doctor client used to try I mean Hudson finally you know I had to fire him as a client and just say listen this is ridiculous you know this is this isn't working for you and it isn't working for me and to be honest with you that's what he used to do he'd give me like for example a buy stop limit at the close all or none my God that order has like four contingencies and then he called me said go off and I go well what do you think I didn't say that but you know all this by the way God forbid the Stars lined up and it did go off because he would say so you Dean sometimes but I I everybody's different you know uh some people are more frugal you know I had a million millionaire guy who used to drive me nuts because I would just want to park the car and pay the valet I said to me this is a wonderful deal we hand him 20 bucks the car disappears we got him another 20 bucks the car reappears I mean do we really want to spend 20 minutes we're driving around trying to find a parking spot I don't you know so everybody's a little different this is very much a memory aid device that's worth a lot of points and uh have you seen this memory aid device before this is a remind us where we place orders in relationship to the current market price so slob's over bliss now you know some people like to do data dump sheets you know and if I were doing a data dump sheet you know if I told you you could have one piece of paper with anything on it front and back or would be on it I would have my Matrix for sure I'd probably have this for sure the O is just to make this a memory a device a mnemonic so the slobs sell limits and buy stops and remember we said whether you want to buy stock that turns into a market order or a buy stop that turns a limit order it goes above the market and then buy limits and sell stops and remember where it's a sell stop that turns into a market order or a cell stop that turns into limit order it goes below the market now the other thing you want to know below the market is we're going to reduce the orders below the markets for uh cash dividends and the reason we're going to do that is because you wouldn't want your order to be triggered as a result of the adjustment from the cash dividend so that too would be testable to know that the orders that are going to get adjusted are going to be the orders below the market so I'm kind of lazy so I would just know the orders below the market and then I would know if it's not Bliss then it must be on the other side now if you don't want us to adjust your orders if you don't want us to adjust your orders you could tell us DNR and that means do not reduce my orders just leave them the way I have placed them and that's up to the customer wants to do that taking discretion very testable so what constitutes we're talking about types of orders and here we're talking about what is a discretionary order a discretionary order is well I'm going to make a decision about action asset amount if I'm making a decision about action asset or amount you need to have discretionary Authority on that account and I have to have that discretionary Authority in place before we do the first discretionary trade you know and on your confirm it will tell you discretion exercised or discretion not exercised whatever the case may be and so uh let's try one uh is this a discretionary order Caesar does not have discretionary Authority on my account so Caesar does not have discretionary Authority on my account I say Caesar buy 10 000 shares of Apple today or whatever time and price you think looks good buy 10 000 shares of Apple today at whatever time and price you think looks good is that an acceptable order if Caesar does not have discretionary Authority you're right it is right because the Three A's are present let's try another one Caesar does not have discretionary Authority on my account I say Caesar there's a jumbo CD of 100 Grand coming due buy me whatever utility stocks you think look good buy me whatever you utility stocks you think look look good I mean a hundred thousand is that acceptable or not acceptable that's not acceptable right because he doesn't have discretionary Authority let's try another one uh Caesar I'm going to be in the Philippines and Mindanao is my missionary father and I may not make it back alive you know one of the leading industries of Mindanao is kidnapping you know Christian missionaries and their sons I'm joking I'm not a missionary I'm not really joking but I'm joking about it anyways I say Caesar there's 10 000 shares of GE in my account if it looks like it's going to drop dramatically sell it there's ten thousand shares of GE in my accountable looks like it's going to drop dramatically sell it yeah you know you may be foolish to take that order but it's acceptable right because the Three A's are present so you know a very kind of a testable scenario for you we don't need discretionary Authority for time and price uh again here's some examples of a test question so what we want to do is we're looking for the Three A's if the Three A's are present it's now meta but you know what's Facebook um it's not a discretionary order so let's see so cell we're looking for the Three A's there's our action there's our amount 500 shares there's our asset The Three A's are present and so that is not a discretionary order right all right let's look at our next one there's our action there's our asset there's our amount the Three A's are present there's our action there's our amount there's our asset The Three A's are present there's our action there's our amount uh oh that is the discretionary order Market not hell Market not held now do you have depending on who your for broker is depends on whether this is a good idea or not and what I'm telling my floor broker the four broker is the person who executes orders for clients and member firms so I tell you I'm the floor broker for Merrill Lynch or Morgan Stanley or UBS or Merrill Lynch I'm the guy who's executing orders for clients of the firm and so here I tell my uh my four broker maybe I'm a Morgan Stanley customer I tell my floor broker buy 5 000 baby Berks or halfway mark at not health Market on Hills means don't tell anybody in the auction that you're holding my order very testable the New York Stock Exchange can be characterized as an auction order driven Market what they're doing is they're matching buyers and sellers and so I'm telling them to go into the crowd the auction but don't tell anybody he has my order and do it at whatever time and price he thinks looks good first test question does this order require discretionary Authority by there's the action there's the amount there's the asset does a market not held order require discretionary Authority yes or no it does not it does not right because the Three A's are present so this does not require discretionary Authority second test question please note who has it it's the floor broker you know on the New York Stock Exchange you do sometimes get tested on participants and one participant is the designated Market maker The Specialist that is not the person holding this order the person holding this order is the four broker you know the The Specialist the designated Market maker would be holding the limit orders and the stop orders but not this order that's our second test uh implication so uh the limit orders are held on the book of the designated Market maker or the specialist so we're talking about the New York Stock Exchange here we're not talking about NASDAQ NASDAQ is much different in terms of how things work and so you say Dean what's going on in the auction right now for the baby Birch rashiors you know by the way it doesn't matter this is Berkshire B it doesn't matter you know there's two types of Berkshire there's Berkshire a and there's Berkshire B right these are called the baby bursters I say right now in the auction uh the quote the quote is not from market makers the quote is 238.91 on the bid and 238.99 on the ask five by two there's 500 shares available at 238.91 and 200 shares available at 238.99 I say are you a buyer or a seller because remember you give me a market order it's going to be immediate execution the best available price and so you say Dean I'm buying 200 shares of the market so you're gonna buy 200 shares in the market we're going to match you with a seller and I would say you bought 200 shares at 238.99 when a customer is looking at two prices the customer always pays the high price and always receives the low price so that's our first point but you might be pleasantly surprised you know listen ladies and gentlemen in over the counter trading you're never going to be pleasantly surprised all of the surprises are going to be unpleasant but if the uh designate Market maker wanted to right now he could fill you at 238.98 wow that's called Bryson broom and you'd be pleasantly surprised now whoever this limit order is this is a limit order this is a sell limit from a customer of a member firm if they what's the specialist going to say he's going to say I was willing to sell it at a lower price than you so right now the specialist is allowed to buy this stock into his own account for anything better than the limit orders that he's holding now and as I said that's called price Improvement so right now the specialist could buy this at 238.92 and the person who's sitting there with that buy limit at 91 complains The Specialist says Hey I was willing to do it at a price better than you and right now he could sell this out of his account for anything less than that price so the specialist is allowed to buy but he has to do so within the thing now by the way that benefits the customer is using marketable orders because it Narrows the spread and narrows the spread all right so let's look at some additional qualifiers or contingency now remember the biggest thing about qualifiers or contingencies is the more contingencies or qualifiers you add the less likely it is the order is going to get executed so again we're looking at the auction market Berkshire Hathaway uh baby the bees and right now the auction it's 238.91 238.99 five by two yeah so as you're a buyer I'm going to match you with a seller these are the limit orders what determines the quote on the New York Stock Exchange test question are orders it's an auction order driven Market by the way it's a double auction I mean reserves both buyers and sellers in the auction place and so you tell me that you want to buy 300 shares fill or kill and I said well I'm sorry Caesars but unlike filler kill he expect a partial execution we lost Caesar I'm sorry we lost him are you not there anymore Caesar that's okay I'll I'll change it's Diego [Laughter] or did I lose you intellectually maybe that's what you mean so let's uh I told you I'm kind of demented so I use these terms outside of our industry uh maybe that will be helpful for you but you know when I'm chaperoning the boys uh high school basketball team years ago oh Zoom is lagging so I'm lagging I'm having an internet connection problem well I hope not anyways I say I pull up with the boys basketball team I say 15 Max 15 fries 15 shakes fill or kill that means I want this order now or kill it I'm out of here off to Burger King we go if I say 15 Max 15 fries 15 shakes meteor cancel they say Dean here seven fives three shakes and two Max I'll accept partial execution all or none 15 Max 15 fives 15 shakes I'll pull my bus in the back when you get the order together I want one fill I don't want you piecing this out to me you know I had a customer once you put in an order to buy 100 contracts and I gotta report his name is John that I got 20 contracts I said John I don't want to have these contracts being doled out to us on the remaining 80 contracts can I make it fill or kill he's holding that's pretty aggressive is there any other qualifier I go oh my goodness here we go again with customers want to use all these qualifiers I said we can make it a meter or cancel that would mean we get another 50 contracts and we canceled rest or we can make it all or not on the 80 we'll wait but we want it all in one fill so here in the example I gave you if Caesar gave me 300 immediate or cancel he'll get the 200 because there's 200 available at that price now we're going to match them with the seller and then all or none he says Dean what's going on I said well nothing because you know there's only 200 shares there so again there's going to be no partial execution and all around I want it all but I'm willing to wait well that sometimes happens unfortunately all right well we did a pretty good Cynthia we were a little over an hour again but we did add some questions or any other questions uh from this evening uh class the next one is going to be debt Securities uh and uh I think that's on the schedule for whatever that's on the schedule for and then remember you also get your uh live stream overtime there's still a couple spots for that next Tuesday and I need to add another office hour free office hour I think there's one coming up at full but I'll add another one when they're full any questions or comments are you guys still there if we lose everybody I hope not no Dean I have questions but not related to this well that's okay so let's just uh say class is officially over and if you have any other questions you want to ask before we uh hit the end button I'm okay with that Cynthia what do you got is that something what do you got Erica um I I just I I have a feeling my um test window or are you still recording games I am you want me to stop the recording let's stop the recording hold on I gotta figure out how to do that